Stocks plunge: Dow off 350 on news of factory orders, joblessness.

NEW YORK - Pessimism about a protracted economic downturn washed over the financial markets yesterday, sending stocks plunging and further tightening the credit markets.

Reports on declining factory orders and a seven-year high in jobless claims stoked fears that the government's financial-rescue plan will not ward off a recession, and the Dow Jones industrials skidded nearly 350 points.

Investors appeared to be settling in for a prolonged economic winter. The main concern is that the $700 billion bailout plan will not be enough to stimulate growth, and economic reports show that the U.S. continues to struggle.

In advance of today's important report on the nation's payrolls, the government said that the number of people seeking unemployment benefits rose last week and that demand at the nation's factories had fallen the most in nearly two years.

The market is interpreting the Commerce Department report on factories as a sign that tight credit is affecting manufacturers.

"The economy is what's driving this weakness," said Subodh Kumar, global-investment strategist at Subodh Kumar & Associates, of Toronto. "I think now what's going on is a focus on the economic weakness in a whole bunch of areas."

He also said, "The next couple of days are going to be pretty intense politically" as Wall Street girds for another vote on the financial-bailout plan, possibly today.

Meanwhile, banks remain fearful of making loans, even to each other, because of worries they will not be repaid. That, in turn, tightened consumer and business credit.

The credit markets showed increased strain yesterday. The yield on the three-month T-bill, the safest type of investment, fell to 0.70 percent from 0.79 percent late Wednesday. The historically low yields indicate investors are willing to accept the smallest of returns to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.64 percent from 3.74 percent late Wednesday.

On Wall Street, yesterday's big drop points to a market increasingly resigned to further economic instability - whether or not the bailout plan becomes law. The stock market is a leading economic indicator because investors tend to trade based on where they believe the economy will be six months or more in the future.

"There are a lot of people who think, regardless of a bailout, there's still this economic data and the horror stories out there," said Todd Salamone, director of trading at Schaeffer's Investment Research. "Certainly, there's a negative psychology."

The Dow fell 348.22, or 3.22 percent, to 10,482.85. The blue chips plunged nearly 778 points Monday, logged a partial rebound Tuesday and finished modestly lower Wednesday; still, the Dow has had triple-digit swings every day this week, having fallen more than 200 Wednesday before closing off only 20.

Broader stock indicators also fell sharply yesterday. The Standard & Poor's 500 index fell 46.78, or 4.03 percent, to 1,114.28, and the Nasdaq composite index fell 92.68, or 4.48 percent, to 1,976.72.

Declining issues led advancers by a ratio of 3-1 on the New York Stock Exchange, where consolidated volume came to 6.16 billion shares, up from 5.59 billion Wednesday.

Billionaire investor Warren Buffett said that the United States had been hit with an "economic Pearl Harbor" and that the government must respond quickly. "That sounds melodramatic, but I've never used that phrase before," Buffett said in an appearance on the

The Charlie Rose Show

on PBS stations.

Abroad, the dollar was higher against the euro and other major currencies, even after the European Central Bank left interest rates unchanged.

The central bank left its key interest rate unchanged amid concerns over inflation, but explored the option of lowering the rate as the crisis increasingly affected the continent.

Higher interest rates in Europe generally make the euro more attractive than the dollar to investors.

The central bank is weighing a bailout of the region's financial system, similar to what U.S. lawmakers are considering.